Bihar's new law limits borrowers to two MFIs, bans unauthorised loans, Pg4

Key Highlights:

• The Bihar government passed the Bihar Micro Finance Institutions (Regulation of Money Lending and Prevention of Coercive Actions) Bill, 2026 to regulate MFIs.
• The law mandates state-level registration for MFIs and bans unauthorized loans.
• It restricts borrowers to a maximum of two MFIs.
• The legislation aims to protect borrowers from exploitative practices and coercive repayment methods.
• Bihar has 600 MFI branches with an outstanding loan amount of Rs 57,712 crore.

Detailed Insights:

• The new law makes it mandatory for MFIs to obtain permission from the Bihar government before disbursing loans.
• Loans taken from unregistered MFIs are non-obligatory for repayment, providing a safeguard for borrowers.
• The law requires MFIs to maintain effective interest rates, provide written loan agreements in Hindi, and prohibits coercive recovery methods.
• Special courts will be established in each district to address cases of usurious interest rates and coercive recovery practices.
• Bihar is the largest microfinance market in India, primarily serving rural areas, with MFI loan interest rates ranging from 15 to 36 percent.

Key Concepts Involved:

• Microfinance Institutions (MFIs): Organizations that provide small loans and financial services to low-income individuals.
• Coercive Recovery Methods: Aggressive or forceful tactics used by lenders to recover loan payments.
• Usurious Interest Rates: Excessively high or illegal interest rates on loans.